Q. I’m thinking of taking out a pension to save on tax and prepare for my retirement, but I hear that there is a new compulsory scheme coming soon. Should I wait?
A. A proposed auto-enrolment retirement savings system could be introduced in Ireland within the next 18 months. The objective of this scheme is to ensure that every worker will have access to a workplace pension to supplement the basic state pension.
The final details are to be agreed but the proposal, which is scheduled to go live from the first quarter of 2024, will mean that all employees not already contributing to an existing employer pension scheme who are aged between 23 and 60 and earning €20,000 or more, will be required to automatically enrol in the new scheme.
It envisages matching contributions from employers and employees, with a 33 per cent uplift of the employee contribution from the state in lieu of income tax relief. The initial contribution proposed is 1.5 per cent by both employer and employer and a 0.5 per cent state contribution, totalling 3.5 per cent of an employee’s salary, in year one. These contributions will increase every three years by 1.5 per cent for employer and employee, reaching a total contribution of 14 per cent in year 10, made up of 6 per cent each for employers and employees and 2 per cent from the state. These contributions will apply to earnings up to €80,000.
While the proposed scheme is voluntary, the approach is opt-out rather than opt-in. Employees will be able to opt out after month six following commencement and after six months of each tri-annual increase within a two-month window, with employees to receive a refund of their own contributions.
Outside these timeframes, the option exists to suspend contributions without a refund. In each case the employer and state contributions also cease. Employees will automatically be enrolled again two years after cessation with the option to further suspend.
“While the target market, may be those currently without a pension, this legislation will highlight challenges for existing schemes that may not wish to operate two systems with the likelihood that the Department of Social Protection will make recommendations on the prescribed standards and contribution levels for pension schemes operating outside of auto-enrolment are compulsory.”
Contact your local financial broker for specific information tailored to your specific needs.
Philip Cullen of Southeast Mortgages & Financial Services
This article aims to give information, not advice. Always do your own research and/or seek out advice from a regulated financial broker, before acting on anything contained in this article.